Groupon is a fast growing group buying discount site that offer coupons in more than 250 markets with over 35 million registered users (http://en.wikipedia.org/wiki/Groupon). The majority business that provide deals to customers with Groupon are customer sales businesses, for instance, restaurants and hair salons. How does Groupon work? It categorise daily deals into cities, and registered users will receive an email from Groupon about today’s deal in his/her city every day. When the number of buyers reach the minimum number specified by a particular deal, the deal on. Groupon makes money by keeping a relatively large portion of discount, usually 1/3 to 1/2, on each deal.
Why is Groupon so popular? My classmate Brian claims that “ the website is able to localize its offers to its users”, and through “ word-of-mouth” and the large mailing list, Groupon is able to reach large amount of customers (https://blogs.ubc.ca/briancheung/
). I agree with him, and as a Groupon user I myself, I think from customer perspective, attractive (cheap) price and the sense of urgency due to the limited time offer play important part.
So far, customers and Groupon are benefit, how about businesses who offer those deals? Well, it depends. First, Groupon is a good marketing tool since businesses are not charged for advertising unless deals they offered are on. Unless businesses obtain guaranteed sales, there is no upfront cost. In other words, Groupon is risk free. Another good thing is that business’s deal attracts lots of new customers. However, they are downsides. Businesses have to offer large discount, and on the top of that, Groupon will ask for a large portion of the businesses’ profits, so profit margins are small and some are actually losing money. So why many businesses do this? They hope to gain repeat customers. Unfortunately, according to Groupon’s research, there are only 22 percent customers visit the business again. It makes sense because lots of customers are bargain hunters.
I think Groupon is good for new business that have high quality product but does not have large customer database. In addition, it should know how to manage its profit margin so it won’t loss much on the deal.